Factors to Consider When Selling a Real Estate Property in Hong Kong

Hong Kong - selling real estate

Hong Kong prides its real estate market as one of the most vibrant long-term investment markets that offer investors numerous opportunities. The real estate market in Hong Kong has greatly developed through the years. Currently, the market is hot as a surge in demands from both local and foreign investors. As a matter of facts, the Centaline Property Centa-City Leading Index, an institution responsible for tracking sales of secondary residential property markets, ranks Hong Kong as the best country for property investment in Asia. It is no doubt that the property market has rebounded from the real estate bubble that it experienced in 1997-2003 and has since grown by more than 370%.

The steady growth of the property market can be attributed to the location suitability of Hong Kong as the de-facto entry point to China, which is among the leading technological countries in the world. It must be noted that the growth of the real estate market has been boosted by Chinese developers and investors who have flocked Hong Kong and have been setting high-end residential and commercial estates.

There are no signs that the markets may slump anytime soon. In fact, market indicators suggest that the real estate market will continue blossoming, thus making it attractive to potential investors. If you are an investor looking forward to selling real estate property in Hong Kong, then you definitely expect to reap better returns on your investments.

In almost any city of Hong Kong, real estate property has gained substantial equity in the past few years. Therefore, you should be able to estimate the value of your property and be in a position to sell it competitively to other investors. However, in most cases, flipping real estate property is never an easy fete. There are costs that may be incurred in the process and they may cut down the amount that you expected to reap after selling the property. Added to that, the process of finding potential buyers and the negotiations can be lengthy and may incur some additional expenses too.

If you intend to sell your property in Hong Kong, you need to do your homework and research on the benefits that you will reap from the sale. Making a decision not based on facts could make you flip your property at a low value and may incur you additions costs that you never expected such as taxes on the income received.

You need to consider various factors before you make the decision to sell your property. These factors include:

Property valuation

Valuation of real estate property is an important consideration that most investors may request for when they intend to buy a real estate property. To buyers, property valuation is important to enable them to seek real estate financing option, investment analysis, payment of insurance premiums and to calculate the taxes payable. On the other hand, property valuation is an important metric that sellers use for listing their property for sale.

Even though you may be tempted to price your real estate property at a higher price in order to maximize your returns, you will eventually realize that this move can be counteractive. Overpricing the property makes it unattractive to potential buyers and it may end up staying longer in the market. In the eyes of a buyer, an overpriced property increases the prices of other expenses that must be paid such as taxes and insurance premiums, hence, they avoid it. Chances are that the property may eventually sell at a price which is below the market value because the property may have become shopworn and buyers may decide to offer low prices. Additionally, the longer a property stays on the market, the more expenses it incurs in marketing further decreasing the returns. In other instances, realtors may become unenthusiastic in moving the products, thus making it unattractive in the market.

There are 3 common methods of valuing property

Sales comparison method - Although the property market in Hong Kong s mature and offers immense opportunities to investors, it is critical for a seller to utilize all market data and statistics available before valuing the property. The market data should provide you with an insight of the demand, scarcity, and value of comparable properties in a given region.  In the case of any custom additions that have been added to your property, you may choose to increase the value of the property slightly to factor in the costs. This is the data that you should use to value the property and consequently set a reasonable price when listing the property.

Cost approach - this approach seeks to factor in the total costs that were used in developing the property as a basis for determining its value while taking into consideration the costs of depreciation. The costs of the land and building costs are used as the primary reference to determine the total costs of the property. This method is not common and it is used to for special types of real estate property such as schools or hospitals

Income approach - This approach seeks to determine the value of an income generating property. The method takes into consideration the net income that a property generates in a given period in relation to the rate of return anticipated by the investors before using this method, it is necessary to appraise the property using relevant market data and statistics that reflect the conditions of the market.

Correct determination of the value of the property is essential to help you in setting competitive prices that will help you to attract realtors and potential buyers move your property fast and with increased ease.

Location

Location of the property is an important factor that determines the profitability of your investment. Most parts of mainland Hong Kong are favorable for investment, though some will certainly be better than others. In the recent years, Chinese developers have increasingly started investing in certain parts of Hong Kong. The suitability of a location depends on whether it is located within a city, the neighborhood status, proximity to the location to basic amenities, proximity to the de facto access point of mainland China etc.

If your property is located in a suitable location, you can easily flip it at attractive prices. Additionally, you may decide to hold on a property for relatively longer as you anticipate for a rise in prices of real estate market n that particular region. You should seek to invest in places that are experiencing exponential growth or promise future long-term growth. This can be identified through vibrant economic statuses of the regions, availability of improved infrastructures, high employment rates etc.

Review your Financing Options

Most investors usually sell property with the intention of purchasing another one. If you are selling a property valued lower than the value of another property that you intend to purchase, you must consider the availability of the financing options available and how sustainable they are in enabling you to purchase the high priced property.  Therefore, you must carry out a research on the amount of credit that you are eligible to borrow to find if the total funds will enable you to acquire the new property in cases where it is more expensive that the value of the property that you selling. It is also important to review the implications of the costs of financing, that is a number of interest rates charged, you need to determine and understand how the interest rates will affect the returns on investment and the overall equity of the investment.

There are instances when you may decide to provide a financing option to the new buyer of your property. In such instances, you need to take caution and find out the credit worthiness of the buyer before you enter into an agreement. In addition, it is critical to understand all the terms of the agreement and the conditions that can lead to termination of the agreement.

Review your Marketing Options

Advertising and marketing, in general, is expensive. You will have to determine the marketing options available and decide on an option that suits your budget while getting your ads to the targeted buyers. You should review the marketing options to ensure that you deploy a strategy that is effective in attracting potential buyers, otherwise, you might be shocked to realize that you are losing money if you invest in a marketing strategy that is ineffective. It is also important to flip your property during a positive market cycle when the values of real estate properties are higher and thus the sale price will be sustainable in covering the expenses incurred in marketing while leaving you with substantial returns. Stick to a marketing approach that has proven effective in attracting potential buyers in the vertical/ types of real estate investment your property is categorized.

Use the Services of Professional Realtors

Some investors usually prefer a DIY selling approach in flipping their property. This approach is beneficial because it will help you to save on the costs of the commission that would have otherwise been charged by real estate agents involved. However, if you have no prior experience in the DIY flipping of your property this over may be counteractive. Foremost, you may not be able to follow proven marketing approaches that would enable the property to be sold on time such as effective listing of property, negotiations with potential buyers etc. you must be aware that there are s several transactions  that are involved in the selling of the property and thus you must be committed and dedicated to going through each transaction. You also must be knowledgeable of all the details of the transactions involved in all the steps involved in selling the property. Otherwise, you need to hire the services of a licensed realtor
The real estate agent who helps you to market the house as well as represents you in the selling transactions should be professionals and reliable. You need to understand all the terms of the contract for listing your property and know all the benefits that you will reap from the realtors and the eventual sale.

Condition of Property

The condition of a property is one of the most important factors to consider in real estate investment. Potential buyers will be willing to pay well for a property that is suitable and meets the standards of construction. When you are selling a property, you need to establish that its condition is stable by ensuring that you hire a professional property inspector to establish the condition of the property and make necessary recommendations on what adjustments could be made to increase the suitability of the property. The property must satisfy that is structurally stable and sound. Buyers will likely not be ready to buy a property with structural flaws unless for a considerably low price.  Potential buyers also avoid properties that are in poor conditions because the property may attract high expenses and cost of maintenance.  Such property could get you tied in many activities since it may be too demanding, while at the end of the day you will realize that it is not worth the efforts especially if the costs involved cancel or are higher than the incomes generated. Moreover, a property in bad condition could occasion losses on the investment in the event that government authorities order its demolition. It is important to renovate the property to ensure that it meets the industry standards and it is attractive to potential buyers.

Considerable Price

Price is a big determinant in real estate investment in Hong Kong. it should be noted that the real estate market in almost every part of the country has been experiencing exponential growth which has influenced the rising prices of property.  Therefore, there are higher chances that you may be forced to spend a huge amount of money to make a meaningful investment. Moreover, you may be easily lured to buy an overpriced property simply because the property is located in prime part of a region thus promising better cash flows. The downside of this, however, is that the growth of the investment may be slow and thus it may take years for the property to accumulate substantial equity. Also, prime areas attract higher operating costs, expenses and other charges that reduce the returns on investment. Instead, it is advisable to purchase underpriced property in a region that is not a prime area but has a potential for future growth. A region that promises future growth can guarantee enhanced growth of inquiry as well as higher long-terms returns.

In addition, investors who are in the investment of buying and selling homes should be wary of over-renovating a home before sale. A property that you may renovate with a lot of funds may still fail to yield sale proceeds above the average sale prices of a given region despite the huge investment in renovations. Always ensure that the renovations value do not exceed the average sale prices of property in a certain region.

Attractive Cash flows

Property investment needs to generate considerable and attractive cash flows that exceed the costs of maintenance and other expenses as well as be in a position to comfortably service mortgage loans. Therefore, you need to evaluate a property to determine its suitability generating cash flows before you invest. It is paramount for you to consider the cash flows that have been generated by the property for the past 5 years as well as make projections of the cash flows that the property is likely to generate in the next 5 or 10 years. While making these evaluations, you will also need to factor in any external forces that may affect the future cash flows and determine how you could sustain the cash flows by overcoming any impediments that may affect the income generated.

Total Costs of the Transactions

A factor that is often overlooked by investors is the total costs of the expenses involved in the different stages and transaction of selling the property. The activities involved include listing the property, writing a description of the property, meeting potential buyers, negotiating with potential buyers, singing the provision sale agreement and eventually signing the formal sale agreement. These activities will have a varying amount of expenses incurred such as hiring a professional photographer to take pictures of the property for the purposes of listing, hiring a freelance copywriter to write the description of the property, hiring a realtor, hiring solicitors etc. All those costs eventually will reduce the amount of sale. However, you must note that they may also influence a quick sale of the property as well as aid in attracting potential buyers who pay a good price for the property. For instance, a well written and creative description could aid in attracting even a foreign investor thus helping the price to sell at a higher price.

The different types of real estate investment have different cost implications that affect the returns on investment. For instance, when you are investing in a home, the total costs that you are likely to incur include the cost of purchasing the property, commission fees charged by realtors etc. If you sourced external financing, the costs involved would include the amount of credit obtained as well as the total costs of the interest rates that are applied to the credit. All these costs will have an implication on the returns on the investment. However, when you are in the business of buying and selling the property you may realize that you may incur marketing expenses. Marketing expenses are usually high and definitely they must affect the cost of selling the property, not to mention other costs which are usually higher than when buying. For instance, the realtor's commission to sell a property is usually higher than the commission the realtor would charge for assisting you in the purchase of a property. Other charges levied include taxes and legal fees applicable.
Therefore the sale price should yield good returns after factoring these costs and should enable you to purchase another property if that was your initial goal while leaving you with a considerable profit. However, if you want to purchase another property after flipping your current one, you will also have to factor in the transactions costs of purchasing the new property to ensure that it is a worthy deal.

Conclusion
You need to follow all the procedures and regulations involved in all the transactions that take place. Do not be in a rush to accept an offer before understanding all the terms because this could attract lawsuits. Always ensure that all the legal procedures in selling and transferring the property are well adhered to and thus you are comfortable with the price that they buyer offers.

Engel & Völkers

Hong Kong, Real Estate Agency
Shop A, Ground Floor, 95 Caine Road, Mid Levels
- Hong Kong
Company License: C-035745
Phone
+852 2561 3616

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